* Zambia says auctioning of emeralds should be held in the country
* Gemfields says its next auction in Lusaka in April
April 8 (Reuters) - Precious stones miner Gemfields Plc said the Zambia government's potential ban on overseas auctioning of gemstones could hurt revenue at its core Kagem emerald mine in north Zambia, sending its shares down as much as 27 percent.
The Zambian Ministry of Mines, Energy and Water Development issued a directive on Friday that all auctioning of emeralds be held in Zambia as their sale in foreign markets contributes to capital flight.
"Gemfields has got around 20 percent of the world's (emerald) market, which comes from Zambia," Chief Operating Officer Dev Shetty told Reuters.
"Not allowing Gemfields to auction abroad is going to take us out of the competition with Brazil and Colombia, which holds 30 percent each of the world's supply of emeralds," Shetty said.
S.P. Angel analyst Carole Ferguson, however, said Zambia was trying to flex its muscles.
"It's just a matter of negotiating with the government - I don't see how the government could realistically expect them (Gemfields) to have all the auctions in Zambia and generate the type of revenue they're generating," Ferguson told Reuters.
Gemfields, owner of the Fabergé luxury jewellery brand, said it would host an auction in Lusaka this month and that its next foreign auction was scheduled to take place in Singapore in June. Zambia owns the rest of Kagem.
The company, which named actress Mila Kunis as its brand ambassador earlier this year, mines mainly emeralds at its 75 percent-owned Kagem mine, but also has interests in ruby and sapphire deposits.
Output from Kagem has been sold solely outside the country since 2009, generating $160 million of revenue from 11 auctions abroad.
Kagem generated revenue of $77.6 million in 2012, compared with $8.8 million in 2008 when Gemfields bought the mine.
A potential ban would also affect Gemfields' Kariba amethyst mine in south Zambia, in which the company has a 50 percent stake, it said.
Gemfields' shares were down 17 percent at 24.75 pence on the London Stock Exchange at 1420 GMT on Monday.